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Is the 60/40 Portfolio Dead? Long Live the 60/40 Portfolio


SmartAsset: Is the 60/40 portfolio gone?A 60/40 portfolio allocation is a popular investing approach. Put simply, it’s an allocation strategy that consists of 60% equities and 40% bonds. This approach, which may allow for robust growth while remaining relatively risk-averse, has shown long-term positive returns over the course of decades and has been a mainstay for many investors. But amid a volatile year in the markets, many have decried the shortcomings of this asset allocation rather than extolling its many virtues. Can the 60/40 portfolio weather a tough market like this one or has it, like many have declared, jumped the shark? Below we’ll discuss why, despite the historic downturns in 2022, the 60/40 portfolio may still be a solid strategy for investors.

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What Is Happening to the 60/40 Portfolio in 2022?

Over the past 30 years, the 60/40 portfolio has had an annualized return of 7.9%, according to Scott Opsal, director of research and equities at Minneapolis-based investment firm The Leuthold Group. Opsal researched this asset allocation in his recent paper “The 60/40’s Annus Horribilis.”

But 2022 has, indeed, been a horrible year for the 60/40, declining as much as 20% before September according to Opsal.

Does the 60/40 Portfolio Still Have Growth Potential?

SmartAsset: Is the 60/40 portfolio gone?

Lower stock valuations and robust bond yields have helped keep the 60/40 portfolio afloat against choppy seas. Investing in a 60/40 now could yield returns of 7% to 8% over the next three years, Opsal said.

Basically, the prices of equities were high in 2020 and 2021. As the gravity of the market brought them down to earth, there’s more opportunity now to buy equities at a cheaper price and see growth.

In his research, Opsal decided to look at stocks and bonds during each quarter since 1976. The data revealed that the last two quarters of 2020 and the first two quarters of 2021 were the worst quarters for joint valuations of stocks and bonds in the last 45 years.

Though it’s easy to lambast the 60/40 portfolio after its lackluster recent performance, Opsal believes this classic asset allocation strategy can see solid growth going forward.

Bottom Line

SmartAsset: Is the 60/40 portfolio gone?

The 60/40 portfolio allocation is still among the most popular allocations between stocks and bonds for investors. In Scott Opsal’s research paper “The 60/40’s Annus Horribilis,” he analyzes the factors driving the recent poor performance – and rumors of demise – of the 60/40 portfolio. He concludes, “The 60/40 is once again priced to deliver reasonable expected returns, albeit with more volatility caused by a diminished benefit from diversification.”

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